Sebi rolls out Specialised Investment Fund with Rs 10 lakh minimum investment
December 18, 2024 Market regulator Securities and Exchange Board of India (Sebi) notified a new asset class between portfolio management services (PMS) and mutual funds and has called it the ‘Specialized Investment Fund’ (SIF). The SIF asset class will accept investments of Rs 10 lakh or more across all investment strategies. The new asset class. positioned between MFs and PMS will open different investment products and approaches to Indian investors. Why the Need for SIFs? For many ambitious investors, mutual funds and PMS have long been the go-to investment options. Mutual funds have provided a more hands-off, diversified way to invest, while PMS has catered to those willing to invest larger sums with personalized strategies. However, there has always been a gap between the two. The minimum investment threshold of Rs 10 lakh ensures that these funds remain focused on high-net-worth individuals (HNIs) or accredited investors who have the financial capacity and expertise to manage such investments. These investors are looking for higher returns and are comfortable with more volatile asset classes. With a minimum investment ceiling of Rs 10 lakh, SIFs allow asset managers to allocate up to 15% in a single security—significantly higher than the 10% limit under traditional mutual fund schemes. For fixed income strategies, exposures can now extend to 20% in a single issuer, with the possibility of increasing this to 25% REITs and InvITs: SIFs can allocate up to 20% of their assets to Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs), but they cannot invest more than 10% in any single issuer. This provides a level of diversification while still allowing for targeted exposure to real estate and infrastructure sectors. Mutual funds are more suitable for conservative investors or those with a lower risk appetite. On the flip side, PMS offers tailored strategies but typically requires a significant minimum investment—often too large for smaller investors, and with a complexity that may seem daunting for those without deep financial expertise. This is where the SIF comes in. Can an SIF offer derivatives as an investment strategy? MFs, as of now, cannot offer derivatives as an investment strategy, but only for hedging and portfolio rebalancing purposes. In a draft proposal earlier this year, Sebi had suggested allowing the new asset class to take exposure in derivatives. However, the framework is silent on derivatives—a critical aspect of modern portfolio management. Given India’s prominence in global derivatives volumes, clarity in this area could further strengthen the appeal and versatility of SIFs. In the draft proposal, Sebi also used another example of differentiated products like ‘Inverse ETFs’ that can be offered by SIFs. However, the gazette notification dated December 16 didn’t mention any such product. Taxation rules should be similar to mutual fund, more details are expected from SEBI on this. Meanwhile, I feel that as an evolving asset class, the SIF is a pivotal addition to India’s investment ecosystem, blending flexibility, higher exposure limits, and diversification potential to meet the growing sophistication of investor needs. CA. Atul Kela